Independent Bank (IBCP) - 2024 Q3 - Quarterly Report

Report Information Filing Details Independent Bank Corporation filed its 10-Q quarterly report for the period ended September 30, 2024, with 20,894,078 common shares outstanding as of November 4, 2024 Key Filing Details | Metric | Detail | | :--- | :--- | | Registrant | INDEPENDENT BANK CORPORATION | | Report Type | FORM 10-Q | | Period End | September 30, 2024 | | Common Shares Outstanding (as of Nov 4, 2024) | 20,894,078 shares | | Filer Status | Accelerated Filer | FORWARD-LOOKING STATEMENTS Nature and Risks of Forward-Looking Statements This report contains forward-looking statements regarding future operations, financial performance, credit losses, growth strategies, and economic conditions, which are based on assumptions that may prove inaccurate - Forward-looking statements cover future operations, revenue, profitability, credit losses, growth strategies, and economic forecasts[5] - Actual results may differ materially due to economic, market, operational, liquidity, credit, and interest rate risks, increased competition, and new legislation[5][6] - The company assumes no obligation to update or revise any statements unless required by applicable law[6] PART I - Financial Information This section presents the company's unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of shareholders' equity, along with detailed notes, management's discussion and analysis, market risk disclosures, and internal control information Item 1. Financial Statements This item provides Independent Bank Corporation's unaudited condensed consolidated financial statements, covering financial condition, operating results, comprehensive income, cash flows, and shareholders' equity, with detailed explanatory notes Condensed Consolidated Statements of Financial Condition Total assets slightly decreased to $5.259 billion as of September 30, 2024, driven by increased loans and reduced borrowings, with total equity rising to $452.369 million Key Financial Condition Data (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | Assets: | | | | | Cash and cash equivalents | $121,560 | $169,781 | $(48,221) | | Securities available for sale | $588,950 | $679,350 | $(90,400) | | Securities held to maturity | $343,362 | $353,988 | $(10,626) | | Total loans | $3,942,287 | $3,790,901 | $151,386 | | Net loans | $3,884,843 | $3,736,243 | $148,600 | | Total assets | $5,259,268 | $5,263,726 | $(4,458) | | Liabilities: | | | | | Total deposits | $4,626,875 | $4,622,879 | $3,996 | | Other borrowings | $— | $50,026 | $(50,026) | | Total liabilities | $4,806,899 | $4,859,277 | $(52,378) | | Shareholders' Equity: | | | | | Total shareholders' equity | $452,369 | $404,449 | $47,920 | Condensed Consolidated Statements of Operations Net income for the three months ended September 30, 2024, decreased to $13.81 million, primarily due to lower non-interest income, while year-to-date net income increased to $48.329 million Key Operating Results (Three Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------- | :----------- | :----------- | :----------- | | Total interest income | $68,334 | $62,432 | $5,902 | | Total interest expense | $26,480 | $23,005 | $3,475 | | Net interest income | $41,854 | $39,427 | $2,427 | | Provision for credit losses | $1,488 | $1,350 | $138 | | Total non-interest income | $9,508 | $15,611 | $(6,103) | | Total non-interest expense | $32,583 | $32,036 | $547 | | Net income | $13,810 | $17,543 | $(3,733) | | Basic earnings per share | $0.66 | $0.84 | $(0.18) | | Diluted earnings per share | $0.65 | $0.83 | $(0.18) | Key Operating Results (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :-------------------- | :----------- | :----------- | :----------- | | Total interest income | $199,798 | $174,316 | $25,482 | | Total interest expense | $76,401 | $58,098 | $18,303 | | Net interest income | $123,397 | $116,218 | $7,179 | | Provision for credit losses | $2,251 | $6,827 | $(4,576) | | Total non-interest income | $37,241 | $41,579 | $(4,338) | | Total non-interest expense | $98,109 | $95,241 | $2,868 | | Net income | $48,329 | $45,324 | $3,005 | | Basic earnings per share | $2.31 | $2.16 | $0.15 | | Diluted earnings per share | $2.29 | $2.14 | $0.15 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for the three months ended September 30, 2024, significantly increased to $26.386 million, driven by unrealized gains on available-for-sale securities and derivatives Comprehensive Income (Three Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------------------- | :----------- | :----------- | :----------- | | Net income | $13,810 | $17,543 | $(3,733) | | Unrealized gains (losses) on AFS securities (net of tax) | $10,100 | $(11,434) | $21,534 | | Unrealized gains (losses) on derivative instruments (net of tax) | $2,476 | $(360) | $2,836 | | Other comprehensive income (loss) | $12,576 | $(11,794) | $24,370 | | Comprehensive income | $26,386 | $5,749 | $20,637 | Comprehensive Income (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------------------- | :----------- | :----------- | :----------- | | Net income | $48,329 | $45,324 | $3,005 | | Unrealized gains (losses) on AFS securities (net of tax) | $13,055 | $1,025 | $12,030 | | Unrealized gains (losses) on derivative instruments (net of tax) | $835 | $(566) | $1,401 | | Other comprehensive income (loss) | $13,890 | $459 | $13,431 | | Comprehensive income | $62,219 | $45,783 | $16,436 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities for the nine months ended September 30, 2024, decreased to $46.782 million, while financing activities shifted to a net use of $62.073 million Summary of Cash Flows (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Change | | :--------------------------------- | :----------- | :----------- | :----------- | | Net cash from operating activities | $46,782 | $58,788 | $(12,006) | | Net cash from investing activities | $(32,930) | $(156,198) | $123,268 | | Net cash from financing activities | $(62,073) | $150,500 | $(212,573) | | Net increase (decrease) in cash and cash equivalents | $(48,221) | $53,090 | $(101,311) | | Cash and cash equivalents at end of period | $121,560 | $127,461 | $(5,901) | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $452.369 million for the nine months ended September 30, 2024, primarily due to net income and other comprehensive income, partially offset by cash dividends paid Changes in Shareholders' Equity (Nine Months Ended September 30, 2024, in thousands) | Metric | Amount | | :--------------------------------- | :----------- | | Beginning balance (January 1, 2024) | $404,449 | | Net income | $48,329 | | Cash dividends declared | $(15,032) | | Share-based compensation (issued) | $1,744 | | Share-based compensation (withheld) | $(1,011) | | Other comprehensive income | $13,890 | | Ending balance (September 30, 2024) | $452,369 | Notes to Interim Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering accounting policies, new accounting standards, specific financial instruments, equity, derivatives, intangible assets, taxes, regulatory capital, fair value measurements, contingencies, and revenue recognition Note 1. Preparation of Financial Statements The condensed consolidated financial statements are prepared in accordance with SEC regulations and GAAP, with simplified disclosures, and include all necessary adjustments for fair presentation - Condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, with certain disclosures simplified[16] - The statements include all adjustments necessary for fair presentation of consolidated financial condition as of September 30, 2024, and December 31, 2023, and results of operations for the three and nine months ended September 30, 2024, and 2023[17] - Key accounting policies include the determination of the Allowance for Credit Losses (ACL) and the valuation of capitalized mortgage servicing rights[17] Note 2. New Accounting Standards The company adopted ASU 2023-02 (Tax Credit Structured Investments) on January 1, 2024, with no material impact, and anticipates no significant impact from future ASUs on segment reporting and income tax disclosures - ASU 2020-04 and ASU 2022-06 (Reference Rate Reform) provide temporary optional expedients for contract modifications and hedge accounting to ease the transition from LIBOR to alternative reference rates like SOFR, effective for the company until December 31, 2024[18][19] - ASU 2023-02 (Investments – Equity Method and Joint Ventures) expands the use of the proportional amortization method for certain tax credit structures, adopted by the company on January 1, 2024, with no material impact on condensed consolidated financial statements[20] - ASU 2023-07 (Segment Reporting) requires disclosure of significant segment expenses provided to the chief operating decision maker and expands certain annual disclosures to interim periods, effective for annual periods after December 15, 2023, and interim periods after December 15, 2024, with no expected material impact[21][23] - ASU 2023-09 (Income Taxes) modifies income tax disclosure rules, requiring specific categories in the rate reconciliation, income (loss) from continuing operations before income tax (domestic and foreign), and income tax expense or benefit from continuing operations (federal, state, and foreign), effective for reporting periods after December 15, 2024, with no expected material impact[24] Note 3. Securities The company's securities portfolio includes available-for-sale (AFS) and held-to-maturity (HTM) securities, with AFS unrealized losses primarily due to rising interest rates, and HTM securities having an ACL of $133 thousand Available-for-Sale Securities (AFS) (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Cost | $639,618 | $744,050 | | Gross unrealized gains | $359 | $464 | | Gross unrealized losses | $51,027 | $65,164 | | Fair value | $588,950 | $679,350 | Held-to-Maturity Securities (HTM) (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Carrying value | $343,362 | $353,988 | | Fair value | $314,638 | $318,606 | | Allowance for credit losses (ACL) | $133 | $157 | - Unrealized losses on AFS securities are primarily attributable to widening spreads and/or increases in interest rates since acquisition, and management does not intend to sell any of these securities before recovery of these unrealized losses[31][32][33][34][35] HTM Securities Allowance for Credit Losses Changes (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | | :--------------------------------- | :----------- | :----------- | | Beginning balance | $157 | $168 | | Provision for credit losses | $(1,149) | $2,987 | | Recoveries charged to allowance | $1,125 | $— | | HTM securities charge-offs | $— | $(3,000) | | Ending balance | $133 | $155 | Note 4. Loans The Allowance for Credit Losses (ACL) for loans increased to $57.444 million as of September 30, 2024, primarily due to loan growth, while total non-performing loans slightly decreased to $5.148 million - ACL estimation involves specific analysis of individual loans, pooled analysis for loans with similar risk characteristics (using DCF models, PD/LGD assumptions, and U.S. unemployment rate forecasts), and additional allocations based on subjective factors like economic trends and portfolio concentrations[47][50][51][53] ACL Movement Analysis (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | | :--------------------------------- | :----------- | :----------- | | Beginning balance | $54,658 | $52,435 | | Provision for credit losses | $3,400 | $3,840 | | Recoveries charged to allowance | $2,106 | $2,082 | | Loans charged-off | $(2,720) | $(2,862) | | Ending balance | $57,444 | $55,495 | Non-Performing Loans (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Total nonaccrual loans | $5,148 | $4,800 | | Loans 90 days or more past due and still accruing | $— | $432 | | Total non-performing loans | $5,148 | $5,232 | - For the nine months ended September 30, 2024, five mortgage loans (1-4 family owner-occupied non-jumbo), one mortgage loan (1-4 family second lien), and one installment loan (other loans) were modified as troubled debt restructurings, totaling $510 thousand, $70 thousand, and $10 thousand respectively, primarily due to term extensions, with four of these modifications in nonaccrual status[69][70][71] Note 5. Shareholders' Equity and Earnings Per Common Share The board authorized a stock repurchase program for up to 1,100,000 common shares by December 31, 2024, with no repurchases made in the first nine months of 2024, while basic EPS for the three and nine months ended September 30, 2024, were $0.66 and $2.31, respectively - The Board of Directors authorized a stock repurchase program for up to 1,100,000 shares of common stock by December 31, 2024, with no repurchases made in the first nine months of 2024[110] Net Earnings Per Common Share (Three Months Ended September 30) | Metric | 2024 | 2023 | | :----- | :---- | :---- | | Basic | $0.66 | $0.84 | | Diluted | $0.65 | $0.83 | Net Earnings Per Common Share (Nine Months Ended September 30) | Metric | 2024 | 2023 | | :----- | :---- | :---- | | Basic | $2.31 | $2.16 | | Diluted | $2.29 | $2.14 | Note 6. Derivative Financial Instruments The company uses interest rate swaps, caps, and floors for fair value and cash flow hedges, as well as non-designated hedging activities, with total notional amounts of $445.61 million for fair value hedges and $325 million for cash flow hedges as of September 30, 2024 Derivative Financial Instruments (September 30, 2024, in thousands) | Designation Type | Notional Amount | Average Remaining Maturity (Years) | Fair Value | | :--------------------------------- | :-------------- | :----------------------- | :--------- | | Fair Value Hedges | | | | | Fixed rate swap agreements - commercial | $5,745 | 4.6 | $239 | | Fixed rate swap agreements - AFS securities | $148,895 | 3.1 | $11,259 | | Fixed rate swap agreements - installment | $100,000 | 2.7 | $(1,741) | | Fixed rate swap agreements - mortgage | $150,000 | 2.8 | $(2,779) | | Interest rate cap agreements - AFS securities | $40,970 | 3.6 | $181 | | Cash Flow Hedges | | | | | Interest rate floor agreements - commercial | $325,000 | 2.5 | $7,281 | | No Hedge Designation | | | | | Interest rate lock mortgage loan commitments | $26,947 | 0.1 | $253 | | Mandatory sale mortgage loan commitments | $40,399 | 0.1 | $25 | | Fixed rate swap agreements - commercial | $492,129 | 5.2 | $(1,313) | | Floating rate swap agreements - commercial | $492,129 | 5.2 | $1,313 | Fair Value of Derivative Financial Instruments (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------- | :----------- | :----------- | | Asset derivatives | $38,774 | $38,683 | | Liability derivatives | $24,056 | $21,835 | - The company has established management objectives and strategies, including maximum volatility interest rate risk parameters for net interest income and market value of portfolio equity, and monitors interest rate risk profiles through simulation modeling reports[117] Note 7. Goodwill and Other Intangibles Goodwill remained at $28.3 million as of September 30, 2024, while amortized intangible assets (core deposits) net decreased to $1.617 million, with an estimated remaining amortization through 2028 Intangible Assets (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Amortizing intangible assets - core deposits (net) | $1,617 | $2,004 | | Non-amortizing intangible assets - goodwill | $28,300 | $28,300 | Estimated Amortization of Core Deposit Intangible Assets (in thousands) | Period | Amount | | :--------------------------------- | :----- | | Three months ending December 31, 2024 | $129 | | 2025 | $487 | | 2026 | $460 | | 2027 | $434 | | 2028 | $107 | | Total | $1,617 | Note 8. Share Based Compensation The company operates a Non-Employee Director Stock Purchase Plan and a Long-Term Incentive Plan, with $1.6 million in compensation expense for the latter and $180 thousand for non-employee directors for the nine months ended September 30, 2024 - The company maintains a Non-Employee Director Stock Purchase Plan and a Long-Term Incentive Plan, allowing for the issuance of stock options and unvested stock awards[135] Share-Based Compensation Expense (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | | :--------------------------------- | :---- | :---- | | Long-Term Incentive Plan expense | $1,600 | $1,400 | | Non-Employee Director payment expense | $180 | $270 | - As of September 30, 2024, $3.1 million of unrecognized compensation cost related to unvested restricted stock and PSUs is expected to be recognized over a weighted-average period of 1.9 years[141] Summary of Stock Options Outstanding (September 30, 2024) | Metric | Number | Weighted-Average Exercise Price | | :--------------------------------- | :----- | :----------- | | Options outstanding at period end | 6,141 | $14.24 | | Weighted-average remaining contractual term | 2.5 years | | Note 9. Income Tax Income tax expense for the nine months ended September 30, 2024, was $11.9 million, primarily reflecting changes in income before taxes, with the company continuing to assess the realization of deferred tax assets as more likely than not Income Tax Expense (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | | :-------------------- | :----------- | :----------- | | Income tax expense | $11,949 | $10,405 | - Differences between actual income tax expense and the amount computed at the statutory rate are primarily due to tax-exempt interest income, tax-exempt income from increases in bank-owned life insurance cash value, and differences between the value of vested stock awards and exercised stock options and their initial expensed fair value[145] - The company believes that the realization of the vast majority of its deferred tax assets remains more likely than not as of September 30, 2024, September 30, 2023, and December 31, 2023[146] - The total amount of unrecognized tax benefits as of September 30, 2024, and December 31, 2023, was approximately $200 thousand, with no significant changes expected for the remainder of 2024[147] Note 10. Regulatory Matters The company and its bank subsidiary are classified as "well-capitalized" as of September 30, 2024, exceeding all minimum regulatory capital ratios, including the capital conservation buffer Regulatory Capital Ratios (September 30, 2024, Consolidated, in thousands) | Capital Ratio | Actual Amount | Actual Ratio | Minimum for Well-Capitalized Institution | Minimum Plus Capital Conservation Buffer | | :--------------------------------- | :------------ | :----------- | :--------------------------------- | :--------------------------- | | Total capital to risk-weighted assets | $606,783 | 14.25% | 8.00% | 10.00% | | Tier 1 capital to risk-weighted assets | $513,461 | 12.06% | 6.00% | 8.00% | | Common equity Tier 1 capital to risk-weighted assets | $474,906 | 11.16% | 4.50% | 6.50% | | Tier 1 capital to average assets | $513,461 | 9.62% | 4.00% | 5.00% | - These ratios do not include the 2.50% capital conservation buffer as of September 30, 2024, and December 31, 2023[151] - As of September 30, 2024, the company's bank was classified as well-capitalized and exceeded the minimum ratios for well-capitalized institutions and the capital conservation buffer[149] Note 11. Fair Value Disclosures The company uses fair value measurements for recurring and non-recurring financial instruments, categorizing inputs into Level 1, 2, or 3 based on observability, with most securities, loans held for sale, and derivatives classified as Level 2 - Fair value measurements are categorized into three levels: Level 1 (quoted prices for identical instruments in active markets), Level 2 (quoted prices for similar instruments in active markets or model-based valuations with all significant assumptions observable), and Level 3 (model-based valuations with at least one significant assumption unobservable)[155][156][157] - Most securities, loans held for sale, and derivative instruments are classified as Level 2, while capitalized mortgage servicing rights and certain collateral-dependent loans are classified as Level 3[159][160][161][164][165] Assets Measured at Fair Value on a Recurring Basis (September 30, 2024, in thousands) | Asset Type | Fair Value | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :----------- | :------ | :------ | :------ | | Securities available for sale | $588,950 | $— | $588,950 | $— | | Loans held for sale | $14,029 | $— | $14,029 | $— | | Capitalized mortgage servicing rights | $40,204 | $— | $— | $40,204 | | Derivative instruments (assets) | $38,774 | $— | $38,774 | $— | Level 3 Fair Value Measurements (Capitalized Mortgage Servicing Rights, September 30, 2024) | Valuation Technique | Unobservable Input | Range | Weighted Average | | :--------------------------------- | :-------------------- | :-------------------- | :----------- | | Present value of net servicing income | Discount rate | 10.00% to 14.99% | 10.25% | | | Cost to service | $69 to $463 | $79 | | | Ancillary income | 20 to 30 | 20 | | | Float rate | | 3.53% | | | Prepayment speed | 6.56% to 29.02% | 10.02% | Note 12. Fair Values of Financial Instruments The company estimates fair values for most financial instruments, acknowledging the subjective nature of these estimates, with net loans and loans held for sale having a fair value of $3.733 billion as of September 30, 2024 - Most assets and liabilities are considered financial instruments, many of which lack active trading markets, and the company generally intends to hold most financial instruments to maturity[180] Fair Value and Carrying Value of Financial Instruments (September 30, 2024, in thousands) | Financial Instrument | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :----------- | :----------- | :------ | :------ | :------ | | Assets: | | | | | | | Cash and due from banks | $61,503 | $61,503 | $61,503 | $— | $— | | Securities available for sale | $588,950 | $588,950 | $— | $588,950 | $— | | Securities held to maturity | $343,362 | $314,638 | $— | $314,638 | $— | | Net loans and loans held for sale | $3,898,872 | $3,732,864 | $— | $14,029 | $3,718,835 | | Derivative financial instruments | $38,774 | $38,774 | $— | $38,774 | $— | | Liabilities: | | | | | | | Non-interest bearing deposits | $3,850,142 | $3,850,142 | $3,850,142 | $— | $— | | Interest bearing deposits | $776,733 | $775,042 | $— | $775,042 | $— | | Other borrowings | $— | $— | $— | $— | $— | | Subordinated debt | $39,567 | $39,687 | $— | $39,687 | $— | | Derivative financial instruments | $24,056 | $24,056 | $— | $24,056 | $— | Note 13. Contingencies The company faces significant economic uncertainties from macroeconomic conditions, which may adversely affect its business and asset valuations, while litigation matters are not expected to have a material impact - Global and national macroeconomic conditions, including elevated inflation, future interest rate uncertainty, foreign exchange rate volatility, geopolitical conflicts, and upcoming elections, continue to create significant economic uncertainty that could materially and adversely affect the company's business, operating results, and asset valuations[190][191][192] - The company is involved in various litigation matters, with accrued losses being immaterial and additional losses expected to be insignificant[193] - On May 6, 2024, the company converted Visa Inc. Class B-1 common stock into Class C and Class B-2 common stock, recognizing a $2.677 million gain from the sale of Class C shares, while Class B-2 shares are held at zero value due to limited liquidity, with the company deeming the likelihood of any payment under the indemnification agreement as remote[195][196][197][199] Note 14. Accumulated Other Comprehensive Loss ("AOCL") Accumulated Other Comprehensive Loss (AOCL) improved from $(72.142) million on January 1, 2024, to $(58.252) million on September 30, 2024, driven by $13.89 million in current period other comprehensive income AOCL Balances (in thousands) | Metric | September 30, 2024 | January 1, 2024 | | :--------------------------------- | :----------- | :---------- | | Total AOCL | $(58,252) | $(72,142) | AOCL Changes (Nine Months Ended September 30, 2024, in thousands) | Component | Beginning Balance | OCI (Loss) Before Reclassifications | Amounts Reclassified from AOCL | Net OCI (Loss) for the Period | Ending Balance | | :--------------------------------- | :---------------- | :------------------------------------------------------- | :----------------------------- | :--------------------------------------------------- | :------------- | | Unrealized losses on AFS securities | $(51,113) | $10,758 | $327 | $11,085 | $(40,028) | | Unrealized losses on transfers to HTM securities | $(15,408) | $1,970 | $— | $1,970 | $(13,438) | | Tax differential on AFS securities | $(5,798) | $— | $— | $— | $(5,798) | | Unrealized gains (losses) on derivative instruments | $177 | $41 | $794 | $835 | $1,012 | | Total | $(72,142) | $12,769 | $1,121 | $13,890 | $(58,252) | Note 15. Revenue from Contracts with Customers Most of the company's revenue (87.1% for the nine months ended September 30, 2024) is from financial instruments outside ASC Topic 606, with other revenue sources including deposit account service charges and investment commissions recognized as services are delivered - Approximately 87.1% of total revenue for the nine months ended September 30, 2024, is derived from financial instruments and related contractual rights and obligations, which are outside the scope of ASC Topic 606[207] - Key revenue sources within the scope of ASC Topic 606 include deposit account service charges, other deposit-related income, interchange income, and investment and insurance commissions[209][210][211][212] Revenue within Scope of ASC Topic 606 (Nine Months Ended September 30, in thousands) | Revenue Source | 2024 | 2023 | | :--------------------------------- | :----------- | :----------- | | Deposit account service charges | $8,894 | $9,300 | | Other deposit-related income | $2,192 | $2,338 | | Interchange income | $10,698 | $10,660 | | Investment and insurance commissions | $2,523 | $2,446 | | Total | $24,307 | $24,744 | Note 16. Leases The company primarily enters into operating leases for office facilities, recognizing lease expense on a straight-line basis, with ROU assets of $6.403 million and lease liabilities of $6.62 million as of September 30, 2024 - The company primarily enters into operating leases for office facilities, with lease expense recognized on a straight-line basis, and has elected not to recognize short-term leases with a term of 12 months or less[227][228] Operating Lease Costs (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | | :-------------------- | :----------- | :----------- | | Operating lease cost | $1,044 | $1,080 | | Variable lease cost | $32 | $72 | | Short-term lease cost | $70 | $71 | | Total | $1,146 | $1,223 | Operating Lease Balance Sheet Information (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Right-of-use assets | $6,403 | $4,911 | | Lease liabilities | $6,620 | $5,114 | | Weighted-average remaining lease term (years) | 7.24 | 6.03 | | Weighted-average discount rate | 3.7% | 2.7% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of the company's financial condition and operating results for the three and nine months ended September 30, 2024, compared to prior periods, covering key performance drivers, asset quality, liquidity, capital, and risk management strategies amidst ongoing macroeconomic uncertainty Introduction and Overview Independent Bank Corporation (IBCP) primarily provides banking services in Michigan's Lower Peninsula, with its success largely dependent on the state's economic conditions - Independent Bank Corporation (IBCP) primarily provides banking services in the Lower Peninsula of Michigan and operates a loan production office in Fairlawn, Ohio[235] - The company's success is largely dependent on the economic conditions in the Lower Peninsula of Michigan[235] Recent Developments Ongoing global and national macroeconomic conditions, including elevated inflation, interest rate uncertainty, and geopolitical conflicts, continue to create significant economic uncertainty that may materially and adversely affect the company's business and asset valuations - Macroeconomic pressures include elevated inflation, future interest rate uncertainty, foreign exchange rate volatility, recent adverse weather conditions, ongoing wars in Ukraine and the Middle East, and upcoming presidential and congressional elections[236] - These pressures could materially and adversely affect the company's business, operating results, asset valuations (intangible assets, AFS securities, HTM securities, loans, capitalized mortgage servicing rights, or deferred tax assets), financial condition, and customers[236] Results of Operations The company's third-quarter 2024 net income decreased primarily due to an unfavorable change in mortgage servicing fair value, despite an increase in net interest income, while year-to-date net income grew due to higher net interest income and reduced credit loss provisions Summary of Results Third-quarter 2024 net income decreased to $13.8 million from $17.5 million in 2023, mainly due to an unfavorable $5.7 million change in capitalized mortgage servicing rights fair value, partially offset by a $2.4 million increase in net interest income - Third-quarter 2024 net income was $13.8 million, down from $17.5 million in the prior year, primarily due to an unfavorable $5.7 million change in the fair value of capitalized mortgage servicing rights from price changes, partially offset by a $2.4 million increase in net interest income[238] - Net income for the first nine months of 2024 was $48.3 million, up from $45.3 million in the prior year, primarily due to increased net interest income and a reduced provision for credit losses, partially offset by higher non-interest expense and income tax expense, and lower non-interest income[239] Key Performance Ratios For the three months ended September 30, 2024, annualized net income as a percentage of average assets decreased to 1.04% from 1.34% in 2023, and as a percentage of average shareholders' equity, it decreased to 12.54% from 18.68% Key Performance Ratios | Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (annualized) as a percentage of average assets | 1.04% | 1.34% | 1.24% | 1.19% | | Net income (annualized) as a percentage of average shareholders' equity | 12.54% | 18.68% | 15.42% | 16.62% | | Basic net income per common share | $0.66 | $0.84 | $2.31 | $2.16 | | Diluted net income per common share | $0.65 | $0.83 | $2.29 | $2.14 | Net Interest Income Net interest income increased by 6.2% to $41.9 million in Q3 2024 and to $123.4 million year-to-date, driven by higher average interest-earning assets and an expanded net interest margin due to rising asset yields outpacing funding costs Net Interest Income (in thousands) | Period | 2024 | 2023 | Change | Percent Change | | :-------------------- | :----------- | :----------- | :----------- | :------- | | Three Months Ended September 30 | $41,854 | $39,427 | $2,427 | 6.2% | | Nine Months Ended September 30 | $123,397 | $116,218 | $7,179 | 6.2% | - The increase in net interest income primarily reflects higher average interest-earning assets (up $93.6 million in Q3 2024 and $145.3 million year-to-date) and an expanded net interest margin (up 14 basis points in Q3 and 9 basis points year-to-date)[243][244][245] - The expanded net interest margin is attributable to an increase in the yield on average interest-earning assets, which was only partially offset by an increase in the cost of average interest-bearing liabilities, primarily due to increases in the federal funds rate since January 2023[246] - Nonaccrual loans averaged $4.5 million and $4.1 million for the third quarter and first nine months of 2024, respectively, similar to prior year levels[247] Provision for Credit Losses The provision for credit losses for the nine months ended September 30, 2024, significantly decreased to $2.25 million from $6.83 million in 2023, primarily due to recoveries on a corporate security previously charged off Provision for Credit Losses (in thousands) | Period | 2024 | 2023 | Change | | :-------------------- | :----------- | :----------- | :----------- | | Three Months Ended September 30 | $1,488 | $1,350 | $138 | | Nine Months Ended September 30 | $2,251 | $6,827 | $(4,576) | - The decrease in the provision for credit losses for the first nine months of 2024 is primarily attributable to a negative $1.15 million provision for credit losses on held-to-maturity securities in 2024 (a recovery) compared to a $2.99 million expense in 2023, reflecting a charge-off of a corporate security (Signature Bank) in Q1 2023 and a subsequent partial recovery in Q1 2024[255] Non-Interest Income Total non-interest income decreased to $9.5 million in Q3 2024 and $37.2 million year-to-date, primarily due to a significant unfavorable change in mortgage loan servicing, net, partially offset by gains on equity securities at fair value Non-Interest Income Components (in thousands) | Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interchange income | $4,146 | $4,100 | $10,698 | $10,660 | | Deposit account service charges | $3,085 | $3,309 | $8,894 | $9,300 | | Mortgage loan net gains | $2,177 | $2,099 | $4,874 | $5,475 | | Equity securities at fair value | $(8) | $— | $2,685 | $— | | Securities available for sale | $(145) | $— | $(414) | $(222) | | Mortgage loan servicing, net | $(3,130) | $2,668 | $1,686 | $7,068 | | Investment and insurance commissions | $882 | $875 | $2,524 | $2,446 | | Bank-owned life insurance | $197 | $124 | $566 | $333 | | Other | $2,304 | $2,436 | $5,728 | $6,519 | | Total Non-Interest Income | $9,508 | $15,611 | $37,241 | $41,579 | - Deposit account service charges decreased by $200 thousand in Q3 2024 and $400 thousand year-to-date, primarily due to fewer overdraft occurrences and related fees[258] Mortgage Loan Activity Mortgage loan originations decreased in 2024 compared to 2023 due to higher interest rates, with net gains remaining stable in Q3 but declining year-to-date, and loan sale margins narrowing due to market rate increases Mortgage Loan Activity (in thousands) | Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Mortgage loan originations | $147,516 | $172,914 | $384,112 | $446,450 | | Mortgage loan sales | $117,037 | $115,269 | $289,395 | $321,140 | | Mortgage loan net gains | $2,177 | $2,099 | $4,874 | $5,475 | | Loan sale margin | 1.86% | 1.82% | 1.68% | 1.70% | - Mortgage loan originations decreased in 2024 compared to 2023, primarily due to higher mortgage interest rates in 2024 leading to reduced activity[260] - The decrease in mortgage loan net gains for the first nine months of 2024 is primarily attributable to a reduction in mortgage loan sales[263] - The decrease in loan sale margin (excluding fair value adjustments) for the third quarter of 2024 is primarily due to a narrowing of the primary to secondary market pricing spread caused by higher market interest rates in 2024, impacted by reduced salable mortgage loan volume[264] Mortgage Loan Servicing, Net Mortgage loan servicing, net, resulted in a $3.1 million expense in Q3 2024, a significant shift from $2.7 million in income in 2023, primarily due to changes in the fair value of capitalized mortgage servicing rights influenced by interest rates and prepayment speeds Mortgage Loan Servicing, Net (in thousands) | Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $2,248 | $2,197 | $6,681 | $6,612 | | Fair value due to price changes | $(4,155) | $1,556 | $(1,979) | $3,364 | | Fair value due to prepayment changes | $(1,223) | $(1,085) | $(3,016) | $(2,908) | | Total | $(3,130) | $2,668 | $1,686 | $7,068 | Capitalized Mortgage Servicing Rights (in thousands) | Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $44,406 | $44,427 | $42,243 | $42,489 | | Capitalized servicing rights | $1,176 | $1,159 | $2,956 | $3,112 | | Fair value changes | $(5,378) | $471 | $(4,995) | $456 | | Ending balance | $40,204 | $46,057 | $40,204 | $46,057 | - As of September 30, 2024, the company services approximately $3.55 billion of mortgage loans for others, for which servicing rights have been capitalized, with a weighted-average coupon rate of 4.08% and a weighted-average servicing fee of approximately 25.5 basis points for the servicing portfolio[270] Other Non-Interest Income Other non-interest income decreased by $100 thousand in Q3 2024 and $800 thousand year-to-date, primarily due to a one-time gain from an office building sale in the prior year and reduced internet banking fees - The decrease in other income for the third quarter of 2024 is primarily attributable to a one-time gain from the sale of an office building in the prior year and certain internet banking fees no longer being charged, partially offset by an increase in commercial loan swap fees[271] - The decrease in other income for the first nine months of 2024 is primarily attributable to one-time gains from the sale of an office building and the purchase of credit-impaired loans in the prior year, as well as certain internet banking fees no longer being charged[271] Non-Interest Expense Total non-interest expense increased by $500 thousand to $32.6 million in Q3 2024 and by $2.9 million to $98.1 million year-to-date, driven by higher compensation and employee benefits, data processing, and advertising costs Non-Interest Expense Components (in thousands) | Metric | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Compensation and employee benefits | $20,048 | $19,975 | $62,069 | $59,916 | | Data processing | $3,379 | $3,071 | $9,891 | $8,953 | | Occupancy, net | $1,893 | $1,971 | $5,853 | $5,975 | | Interchange expense | $1,149 | $1,119 | $3,373 | $3,222 | | Furniture, fixtures, and equipment | $932 | $927 | $2,834 | $2,782 | | FDIC deposit insurance | $664 | $677 | $2,141 | $2,209 | | Loan and collection | $657 | $520 | $1,868 | $1,718 | | Advertising | $581 | $360 | $1,860 | $1,286 | | Legal and professional services | $687 | $543 | $1,717 | $1,623 | | Communications | $519 | $568 | $1,633 | $1,871 | | Costs related to unfunded loan commitments (recovery) | $113 | $451 | $(676) | $76 | | Other | $1,961 | $1,854 | $5,546 | $5,610 | | Total Non-Interest Expense | $32,583 | $32,036 | $98,109 | $95,241 | Compensation and Employee Benefits Compensation and employee benefits expense increased by $100 thousand in Q3 2024 and $2.2 million year-to-date, driven by salary increases and higher expected incentive compensation, partially offset by reduced employee medical insurance costs and mortgage origination incentives - Salary expense increased by $200 thousand in Q3 2024 and $100 thousand year-to-date, primarily due to salary increases effective January 1, 2024, partially offset by reductions in mortgage operations and other retail staff[274] - Incentive compensation increased by $500 thousand in Q3 2024 and $2.4 million year-to-date, primarily due to higher expected incentive compensation payments for salaried and hourly employees[275] - Payroll taxes and employee benefits decreased by $600 thousand in Q3 2024 and $300 thousand year-to-date, primarily due to reduced employee medical insurance costs and mortgage origination-related incentives[276] Data Processing and Advertising Data processing expenses increased by $300 thousand in Q3 2024 and $900 thousand year-to-date, due to annual asset growth and CPI-related costs from the core data processor and new solution implementations, while advertising expenses rose due to strategic marketing adjustments and website redesign projects - Data processing expenses increased partly due to annual asset growth and CPI-related costs from the core data processor, as well as new solutions implemented during the period[277] - Advertising expenses increased primarily due to adjustments in strategic marketing spending and costs associated with certain website redesign projects[278] Other Non-Interest Expenses Taxes, licenses, and fees increased by $100 thousand in Q3 2024 and $200 thousand year-to-date, primarily due to higher Michigan corporate income tax, while costs related to unfunded loan commitments decreased due to changes in balances and loss rates - Taxes, licenses, and fees increased primarily due to higher Michigan corporate income tax expense resulting from an increased tax base[279] - The decrease in costs related to unfunded loan commitments (recovery) is due to changes in the balance of loan commitments and the loss rates applicable to those loan commitments[280] Income Tax Expense Income tax expense for Q3 2024 was $3.5 million and $11.9 million year-to-date, reflecting fluctuations in income before taxes, with the company maintaining its assessment that deferred tax assets are more likely than not to be realized - Changes in income tax expense for the third quarter and first nine months of 2024 are primarily attributable to changes in income before taxes[281] - Differences between actual income tax expense and the amount computed at the statutory rate are primarily due to tax-exempt interest income, tax-exempt income from increases in bank-owned life insurance cash value, and differences between the value of vested stock awards and exercised stock options and their initial expensed fair value[282] - As of September 30, 2024, September 30, 2023, and December 31, 2023, the company believes that the realization of the vast majority of its deferred tax assets remains more likely than not[283] Financial Condition The company's total assets slightly decreased in the first nine months of 2024, with an increase in loans and a decrease in securities, while deposits saw a modest increase driven by interest-bearing accounts and reciprocal deposits Summary of Financial Condition Total assets decreased by $4.5 million in the first nine months of 2024, with loans (excluding held for sale) increasing to $3.94 billion and total securities decreasing by $101.1 million, while deposits rose by $4 million to $4.63 billion - Total assets decreased by $4.5 million in the first nine months of 2024[284] - Loans (excluding loans held for sale) were $3.94 billion as of September 30, 2024, compared to $3.79 billion as of December 31, 2023[284] - Securities available for sale and held to maturity totaled $932.3 million as of September 30, 2024, a decrease of $101.1 million from December 31, 2023[284] - Total deposits were $4.63 billion as of September 30, 2024, an increase of $4 million from December 31, 2023, primarily due to increases in savings and interest-bearing checking deposits, reciprocal deposits, and time deposits, partially offset by decreases in non-interest-bearing deposits and scheduled maturities of brokered time deposits[285] Securities Portfolio The company holds a diversified securities portfolio, with available-for-sale (AFS) securities decreasing by $90.4 million to $588.95 million and held-to-maturity (HTM) securities decreasing by $10.6 million to $343.362 million as of September 30, 2024 Available-for-Sale Securities (AFS) (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | Amortized cost | $639,618 | $744,050 | $(104,432) | | Fair value | $588,950 | $679,350 | $(90,400) | Held-to-Maturity Securities (HTM) (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | Carrying value | $343,362 | $353,988 | $(10,626) | | Fair value | $314,638 | $318,606 | $(3,968) | | ACL | $133 | $157 | $(24) | - The company considers unrealized losses on available-for-sale securities to be temporary and expects recovery within a reasonable period, with the ability and intent to hold these securities to maturity or until unrealized losses reverse[288][290] - The allowance for credit losses on held-to-maturity securities reflects a $1.1 million recovery in Q1 2024 for a corporate security (Signature Bank) that was charged off in Q1 2023[292] Equity Securities at Fair Value On May 6, 2024, the company converted Visa Inc. Class B-1 common stock into Class C and Class B-2 shares, recognizing a $2.677 million gain from the sale of Class C shares, while Class B-2 shares are held at zero value due to limited liquidity - On May 6, 2024, the company converted 12,566 shares of Visa Inc. Class B-1 common stock into 2,493 shares of Visa Inc. Class C common stock and 6,283 shares of Visa Inc. Class B-2 common stock[294] - This conversion resulted in a $2.677 million gain recognized on the Class C shares, which were subsequently sold for $2.685 million net gain[294] - The Class B-2 shares are carried at zero value due to very limited liquidity and uncertainty regarding future conversion[294] Portfolio Loans and Asset Quality The total loan portfolio increased to $3.94 billion as of September 30, 2024, driven by commercial and mortgage loan growth, while non-performing loans slightly decreased to $5.148 million, and the Allowance for Credit Losses (ACL) rose to $57.4 million Loan Portfolio Summary (in thousands) | Loan Type | September 30, 2024 | December 31, 2023 | Change | | :--------------------------------- | :----------- | :----------- | :----- | | Real estate | $2,813,875 | $2,684,222 | $129,653 | | Consumer loans | $599,732 | $619,374 | $(19,642) | | Commercial loans | $525,195 | $483,129 | $42,066 | | Agricultural loans | $3,485 | $4,176 | $(691) | | Total Loans | $3,942,287 | $3,790,901 | $151,386 | Non-Performing Assets (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Nonaccrual loans | $7,250 | $6,991 | | Loans 90 days or more past due and still accruing | $— | $432 | | Less: Government guaranteed loans | $2,102 | $2,191 | | Total Non-Performing Loans | $5,148 | $5,232 | | Other real estate and repossessed assets | $781 | $569 | | Total Non-Performing Assets | $5,929 | $5,801 | Non-Performing Loan Ratios | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Non-performing loans as a percentage of total loans | 0.13% | 0.14% | | Allowance for credit losses as a percentage of total loans | 1.46% | 1.44% | | Allowance for credit losses as a percentage of non-performing loans | 1115.85% | 1044.69% | Allocation of Allowance for Loan Credit Losses (in thousands) | Allocation Type | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Specific allocations | $2,452 | $1,292 | | Pooled analysis allocations | $42,086 | $40,944 | | Additional allocations based on subjective factors | $12,906 | $12,422 | | Total | $57,444 | $54,658 | Deposits and Borrowings Total deposits slightly increased to $4.63 billion as of September 30, 2024, driven by growth in savings, interest-bearing checking, reciprocal, and time deposits, while other borrowings decreased to zero Deposits (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total deposits | $4,626,875 | $4,622,879 | $3,996 | | Reciprocal deposits | $995,469 | $832,020 | $163,449 | - Other borrowings decreased from $50 million as of December 31, 2023, to zero as of September 30, 2024[8][312] Uninsured Deposits (Excluding Intercompany Deposits) (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Uninsured deposits | $1,056,791 | $961,974 | | Uninsured deposits as a percentage of total deposits | 23.0% | 22.2% | - As of September 30, 2024, wholesale funding sources, including reciprocal deposits, totaled approximately $1.04 billion, representing 22.4% of total funding (deposits and all borrowings, excluding subordinated debt and debentures)[313] Liquidity and Capital Resources The company manages liquidity by maintaining sufficient liquid assets and diverse borrowing sources, with $1.111 billion in FHLB and $471.7 million in FRB unused credit lines, plus $771.3 million in unpledged securities providing an estimated $718 million in additional borrowing capacity - The company manages liquidity primarily by maintaining sufficient liquid assets (primarily FRB deposits and certain available-for-sale securities) and by accessing diversified borrowing sources[316] - As of September 30, 2024, the company had approximately $1.111 billion in unused FHLB credit lines and $471.7 million in unused FRB credit lines[317] - As of September 30, 2024, the company had $771.3 million in fair value of unpledged available-for-sale and held-to-maturity securities, which could provide an estimated $718 million in additional borrowing capacity from the FHLB and FRB[317] - As of September 30, 2024, the parent company had approximately $47 million in cash on hand (including time deposits), sufficient to meet operating expenses, interest payments on subordinated debt and debentures, and (together with bank dividends) to pay anticipated cash dividends on common stock[321] Capitalization Total capitalization increased to $530.924 million as of September 30, 2024, driven by an increase in common shareholders' equity to $452.4 million and a reduction in accumulated other comprehensive loss, with tangible common equity (TCE) rising to $422.5 million Capitalization (in thousands) | Metric | September 30, 2024 | December 31, 2023 | Change | | :-------------------- | :----------- | :----------- | :----- | | Subordinated debt | $39,567 | $39,510 | $57 | | Subordinated debentures | $39,779 | $39,728 | $51 | | Total shareholders' equity | $452,369 | $404,449 | $47,920 | | Total Capitalization | $530,924 | $482,953 | $47,971 | - Common shareholders' equity increased to $452.4 million from $404.4 million as of December 31, 2023, primarily due to retained earnings and a reduction in accumulated other comprehensive loss[328] - Tangible common equity (TCE) totaled $422.5 million, up from $374.1 million as of December 31, 2023, with TCE as a percentage of tangible assets at 8.08% as of September 30, 2024, compared to 7.15% as of December 31, 2023[328] Asset/Liability Management The company actively manages interest rate risk through simulation analysis, which as of September 30, 2024, indicates exposure to rising interest rates, a risk that has moderately decreased since December 31, 2023, due to shorter asset durations, longer liability durations, and higher base values - The company monitors its interest rate risk profile through simulation analysis, assessing the potential impact of interest rate changes on net interest income and the market value of portfolio equity[334] - As of September 30, 2024, the company's interest rate risk profile, as measured by long-term interest rate risk, indicates exposure to rising interest rates, but has moderately decreased since December 31, 2023, due to shorter asset durations, longer liability durations, and higher base values[336] - The market value of portfolio equity simulation base case as of September 30, 2024, increased from December 31, 2023, primarily due to an increase in the bank's tangible equity and an improvement in asset values from declining interest rates[336] Market Value of Portfolio Equity, Net Interest Income, and Net Interest Margin Changes (in thousands) | Interest Rate Change | Portfolio Equity Value (September 30, 2024) | Percent Change (September 30, 2024) | Portfolio Equity Value (December 31, 2023) | Percent Change (December 31, 2023) | | :----------------------- | :--------------------------------------- | :---------------------------- | :--------------------------------------- | :---------------------------- | | +200 basis points | $550,600 | (11.39)% | $447,600 | (17.29)% | | +100 basis points | $585,800 | (5.73)% | $494,500 | (8.63)% | | Base Case | $621,400 | — | $541,200 | — | | -100 basis points | $644,300 | 3.69% | $582,800 | 7.69% | | -200 basis points | $648,500 | 4.36% | $603,200 | 11.46% | Litigation Matters The company is involved in various litigation matters in its ordinary course of business, with accrued losses being immaterial and additional losses expected to be insignificant - The amount of litigation losses accrued by the company is immaterial[338] - The company believes that the amount of additional losses that are reasonably possible is insignificant[338] - Litigation matters primarily involve claims for damages against the company and do not include litigation where the company is seeking to recover amounts from third parties, as the likelihood of the company paying damages in the latter case is remote[340] Accounting Standards Update This section refers to Note 2 of the condensed consolidated financial statements for detailed information on recently issued accounting standards and their impact on the company's financial statements - For detailed information regarding recently issued accounting standards and their impact on the company's condensed consolidated financial statements, refer to Note 2 to the Condensed Consolidated Financial Statements in this report[341] Fair Valuation of Financial Instruments This section refers to Note 11 of the condensed consolidated financial statements for a comprehensive discussion of the company's fair value measurements for financial instruments and related valuation techniques - For a complete discussion of the company's fair value measurements for financial instruments and related valuation techniques, refer to Note 11 to the Condensed Consolidated Financial Statements in this report[343] Critical Accounting Policies The company's critical accounting policies, including the Allowance for Credit Losses (ACL) and capitalized mortgage servicing rights, involve significant estimates and judgments, with no material changes since the 2023 10-K annual report - The company's critical accounting policies include the determination of the Allowance for Credit Losses (ACL) and the valuation of capitalized mortgage servicing rights, which involve significant estimates and management judgments[344] - There have been no material changes to the com